2019 (9) TMI 907 - AT - Income Tax

Tribunal allows appeal on sales commissions but disallows related party payments without proof

Shri Ram Ratan Joshi Versus A.C.I.T., Circle-4, Jaipur.

The Tribunal partially allowed the appeal, recognizing the genuine nature of commission payments made for sales-related services in Uttar Pradesh while ... Disallowance of commission expenses - bogus expenses - HELD THAT:- Commission paid to Shri Deepak Kumar Tripathi, Vikash Pandey and Md. Danish Hussain were in respect of sales of the assessee’s product in the State of Uttar Pradesh. Though, there was no agreement or any other supporting evidence except their statement/confirmations. Once the A.O. has examined these parties and confirmed having rendered services then the claim in respect of these three parties cannot be denied. As the business of the assessee for selling of its products in the State of Uttar Pradesh is not in dispute and it is also not in dispute that the assessee has not claimed any other expenditure regarding travelling in respect of sale in the State of Uttar Pradesh, therefore, commission paid to three parties namely Shri Deepak Kumar Tripathi, Shri Vikash Pandey and Mohd. Danish Hussain are allowable deduction being incurred for the purpose of business. As regards the commission paid to Ms. Preeti Tripathi, Ms. Pushpa Tripathi and Deepak Kumar Tripathi (HUF), it is apparent that these are only the name facilitated by Shri Deepak Kumar Tripathi and Shri Vikash Pandey for inflating the expenditure by the assessee. Therefore, in absence of any material to show that these other persons even are competent to render the service, the claim of commission paid to the related parties Shri Deepak Kumar Tripathi and Vikash Pandey is not found to be genuine. Hence, in the facts and circumstances of the case, the claim of the assessee is allowed in respect of Shri Vikash Pandey and Mohd. Danish Hussain and the balance amount of disallowance is sustained. Appeal of the assessee is allowed in part. Issues:1. Disallowance of lump sum expenses.2. Addition of unaccounted cash balance.3. Disallowance of commission expenses.Issue 1: Disallowance of Lump Sum ExpensesThe appellant contested the restriction of lump sum disallowance to 10% of expenses incurred on various items. The Tribunal dismissed grounds 1 and 2 as not pressed due to the small amount involved. The focus shifted to the disallowance of commission expenses.Issue 2: Addition of Unaccounted Cash BalanceThe appellant challenged the addition of Rs. 77,410 as unaccounted cash balance, arguing against its characterization. However, this issue was not pressed during the hearing, and no objections were raised by the Revenue. Hence, this aspect was not further addressed in the judgment.Issue 3: Disallowance of Commission ExpensesThe primary contention revolved around the disallowance of commission expenses amounting to Rs. 13,00,000. The appellant, engaged in manufacturing and trading, paid commissions to six parties, with the Assessing Officer (A.O.) disallowing amounts paid to five parties. The appellant argued that these parties were essential for selling products in Uttar Pradesh, emphasizing the necessity of their services for sales in remote areas. The A.O. allowed the commission paid to one party but disallowed the rest due to lack of evidence of independent work. The Tribunal noted that payments to family members lacked supporting documentation, except for the authorized representative. However, payments to other parties for sales-related services were deemed genuine based on confirmations and the nature of the business. The Tribunal allowed the claim for three parties involved in sales activities in Uttar Pradesh, while disallowing payments to related parties used to inflate expenses.In conclusion, the Tribunal partially allowed the appeal, recognizing the genuine nature of commission payments made for sales-related services in Uttar Pradesh while disallowing payments to related parties without sufficient evidence.